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1 in 3 businesses say they are ‘bleeding’ $100,000-plus a year

While the Australian economy is yet to face a quarter of negative growth, the growth rate has been slowing in the last 18 months – from 3.7% in the December quarter of 2021 to 0.7% in the September quarter of 2022, and 0.5% in the December quarter of 2022.[1] Many consumers have pulled back on their spending and businesses may already be feeling the pinch. Now, new research reveals that 86 per cent of SMEs admit they are overspending in many areas of their businesses. Specifically, a third (32 per cent) of Aussie SMEs could save over $100,000 in a year if they reduced their unnecessary spending.

 

These figures have been revealed in a new survey of an independent panel of respondents commissioned by business loan comparison site Small Business Loans Australia. The respondents were 210 business owners or senior decision-makers across the full SME spectrum: micro (1-10 employees), small (11-50 employees) and medium-sized (51-200 employees), as well as a small percentage of larger businesses (more than 200 employees). The full survey results, including breakdowns across business sizes and states, can be found here: https://smallbusinessloansaustralia.com/areas-of-overspending/

Where are Aussie SMEs overspending?

The respondent pool of business owners and senior decision-makers were asked to specify if they believed the business is overspending, and by how much, across a list of 17 expense categories. These are:

1. Payroll, salaries and employee benefits

2. Rent or mortgage

3. Utilities

4. Equipment (incl. computers)

5. Vehicles and their expenses (incl. petrol)

6. Internet, cloud storage, software or subscriptions

7. Inventory and stock

8. External contractors and professional services the business outsources to

9. Workplace furniture and supplies

10. Maintenance and repairs in the workplace or on equipment

11. Marketing, advertising and sponsorship

12. Insurance

13. Business travel

14. IT hardware (computers, servers)

15. Interest and fees on loans

16. Employee head count

17. Workplace amenities for employees

Small Business Loans Australia found that 86 per cent of Aussie SMEs are overspending on at least one expense category. Insurance topped the list, with 28 per cent of respondents admitting they believe they spend too much, followed closely by utilities (chosen by 26 per cent).

One in five (20 per cent) of businesses believe they spend too much on rent or mortgage, and 17 per cent spend too much on marketing, advertising and sponsorship. An equal 16 per cent overspend on external contractors as well as wages and employee benefits, while 14 per cent spend too much on business travel, 13 per cent on employee head count, 12 per cent on inventory and stock, an equal 10 per cent on loan interest and fees as well as maintenance and repairs. Nine per cent said they spend too much on workplace amenities, an equal 8 per cent on IT hardware as well as furniture and workplace supplies, and just 7 per cent on equipment and computers.

Smaller businesses are significantly more likely to be wiser with their spending: 25 per cent of micro businesses believe they don’t spend too much on anything. This compares with only 8 per cent of small businesses and 4 per cent of medium-sized businesses.

Despite having the second-lowest median weekly wages across the states, South Australian[2] SMEs are most likely to believe they are spending too much on wages and employee benefits by a significant margin, chosen by 27 per cent of respondents. This was followed by 19 per cent of NSW and Queensland businesses and 17 per cent of Victorian businesses. Only 14 per cent of West Australian businesses felt they were spending too much on wages and benefits, despite Perth boasting the highest median weekly earnings of all the capital cities.[3]

How much money could SMEs save if they cut unnecessary spending?

Small Business Loans Australia also sought to discover how much SMEs could save if they avoided unnecessary spending. Two-thirds (63 per cent) said they could save more than $50,000 a year, one third (33 per cent) indicated they could save at least $100,000 a year, and one in five (21 per cent) could save more than $200,000 a year.

Just 16 per cent of businesses said they couldn’t make any monetary cuts.

Businesses from Queensland are most likely to be operating at the minimum cost level, with 28 per cent of businesses unable to make any more monetary costs. Seventeen (17 per cent) of Victorian businesses, 14 per cent of West Australian, 13 per cent of South Australian and only 8 per cent of NSW businesses specified the same.

Larger businesses are more likely to be spending $100,000 or more each year on costs: 66 per cent of medium-sized businesses admitted they waste at least this amount on expenses, compared with only 26 per cent of small businesses and 6 per cent of micro businesses.

Alon Rajic, Founder and Managing Director of Small Business Loans Australia, says: “SMEs make up 97 per cent of the Australian business market, so it is concerning to see that the majority are spending such significant amounts unnecessarily as the economy prepares to slow down. Instead, businesses could look to build a cash buffer should their sales slow over the next year.

“Downsizing their workplaces if they offer a hybrid working arrangement, switching insurers and utility providers, and refinancing business loans for a better deal could help make significant changes to their yearly spending.”

The full survey results, including breakdowns across business sizes and States, can be found here: https://smallbusinessloansaustralia.com/areas-of-overspending/